Pumpkin Patch wary of Christmas as retailers keep discounting

Pumpkin Patch, the children's clothing chain that closed underperforming stores in the US and Britain this year, is wary of the upcoming Christmas trading period as the environment stays tough and retailers continue to discount their wares to attract bargain-hungry customers.

Chief executive Neil Cowie told shareholders the tough trading conditions from the 2012 financial year have carried over into the new period and he does not expect that will "materially improve" in the short term.

"Promotional activity remains higher than normal as all retailers attempt to spark life into customers, but as a result, margins are impacted," he says in annual meeting speech notes published on the NZX.

"The general consensus out there is that Christmas will be challenging, so for that reason my primary focus is making sure we pull every trick out of the hat to maximise sales opportunities."

Pumpkin Patch has been shifting its distribution focus to online channels and away from physical outlets to keep a lid on costs after it overhauled its structure this year, taking a $39 million charge to do so.

Mr Cowie says the retailer has based its entire distribution operation out of Auckland and can beat delivery by local online businesses competing in its eight international markets.

About 11% of Pumpkin Patch's Australasian sales were online in the 2012 year.

"This gives us a great platform on which to base the significant growth we are expecting from online in the future," he says.

Pumpkin Patch's international partners unit, which develops and supports relationships with third-party operators which sell the company's products, is looking at new ventures in the Middle East, Central America and Asia, though Mr Cowie says he is not able to elaborate.

Chairwoman Jane Freeman told shareholders the board will review its freeze on dividend payments at the end of the first half, but backs repaying bank debt before doing so.

Pumpkin Patch is looking at allocating shares to Mr Cowie and his team under the existing long-term incentive scheme and shareholders will receive a letter about the plan in the coming days, she says.

"The allocation creates a long-term retention tool and an incentive for the team to continue with the development of strategies that will drive improved shareholder value into the future."

The shares were unchanged at $1.25 in trading today and have jumped 94% this year.